What are market imperfections and market failures?
The fundamental basis of economics is the fact that the resources we have are scarce, whether economy-wide, or in a sector of the economy such as health care. Economics is the study of the way in which scarce resources are allocated among alternative uses to satisfy the wants of society. Health economics helps us understand how the scarce resources the health care system are allocated among the many competing uses for those resources to satisfy our health care needs. Given scarcity, it is necessary to determine how to allocate resources, and to decide how resources should be used. Although this can be done in a variety of ways, in general the United States relies upon a market-based economy to allocate resources. When economists talk about a market, they mean a process of voluntary exchange between buyers and sellers of goods or services. Therefore, the market for health care consists of buyers of health care (consumers and purchasers of health insurance) and sellers (health care provi
